During 2009, both oil and gas reserves grew for the first time since 2005, and production increased 1%, driven by a 2.2% increase in natural gas output.

Oil reserves, up 3% to 164 billion bbl, reversed a 2-year decline driven mainly by positive reserve additions but also by extensions and discoveries in Canadian oil sands and South and Central America.

Natural gas reserves climbed 3.7% despite a record 11.4 tcf in negative reserve additions as the development of unconventional plays in North America and LNG resources in Asia accelerated, IHS Herold said.

The report found that E&P companies slashed capital spending by 40% last year, while the integrated oil companies reduced their investments by 9%. Exploration outlays fell 12% to $62.7 billion, but unproved acquisition costs dropped 71%.

A 2% dip in proved acquisition outlays would have fallen 50% were it not for the $20 billion merger of Suncor Inc. and Petro-Canada.

“With the recession and ongoing uncertainty in the market last year, companies put acreage acquisition on hold and seemed to focus on their in-house development opportunities,” said the report’s author and director of IHS Herold, Nicholas D. Cacchione.

“This decision, I think, reflected their desires to monetize known holdings that can be brought into production much more rapidly than something with a less certain payout several years down the road,” Cacchione said.

The reduced capital spending and higher reserves totals resulted in a near 50% decrease in reserve replacement costs to $11.41/boe and lower finding and development costs to $12.23/boe, IHS Herold said.

Strong natural gas reserves additions led reserves replacement rates to the highest level in 5 years, according to the report.

IHS Herold expects a modest rebound in 2010 upstream spending. In North America E&P investment increased 30% in the first half of this year, which was more than expected and should result in a 20% increase in spending for the year, said Cacchione.

Cacchione added that outside North America, where spending declines were less severe during 2009, he expects upstream investment to climb 10% this year.